Research Update: Rolls-Royce PLC Upgraded To 'BBB-/A-3' On Strong Performance, Cash Generation, And Deleveraging; Outlook Positive

Rolls-Royce PLC's operating performance in 2023 was stronger than we had anticipated, resulting in S&P Global Ratings' adjusted free operating cash flow (FOCF) of around £1.5 billion in 2023, leading to meaningful deleveraging. Under our revised base-case scenario for 2024-2025, we currently anticipate the company's profitability and cash generation will continue improving as a result of increases in engine flying hours, with growth in its LTSA balances and increasing shop visits, good cost management and pricing initiatives. This will result in the company's S&P Global Ratings'-adjusted EBITDA margin of 16.7%-17.5% improving from 16.5% in 2023, and FOCF of £1.7 billion - £2.2 billion per year, higher than pre-pandemic levels. As a result, we anticipate the company's balance sheet could strengthen

...- Rolls-Royce PLC's operating performance in 2023 was stronger than we had anticipated, resulting in S&P Global Ratings' adjusted free operating cash flow (FOCF) of around ú1.5 billion in 2023, leading to meaningful deleveraging. - Under our revised base-case scenario for 2024-2025, we currently anticipate the company's profitability and cash generation will continue improving as a result of increases in engine flying hours, with growth in its LTSA balances and increasing shop visits, good cost management and pricing initiatives. This will result in the company's S&P Global Ratings'-adjusted EBITDA margin of 16.7%-17.5% improving from 16.5% in 2023, and FOCF of ú1.7 billion - ú2.2 billion per year, higher than pre-pandemic levels. - As a result, we anticipate the company's balance sheet could strengthen further from 2023 figures, where the company's S&P Global Ratings adjusted debt to EBITDA reached 0.9x (2.2x in 2022) and its FFO to debt rose to about 92.9% (32.7% in 2022). - We therefore...

Research Update